Prescription Drugs
So I went to the drug store the other day to pick up some cold remedies and I noticed that Allegra (fexofenadine), a popular allergy medication was now being sold over the counter (OTC). I have used Allegra on occasion and have found it to be very effective. When I came home I told my wife about this and she lamented something to the effect that it likely won’t get covered by insurance any longer and so will now be “more expensive” (for us).
This prompted a few thoughts:
1) people universally shop for the best deal. Sometimes the best deal comes in the form of getting a drug through an insurance company. The more an insurance company offers, the more expensive the insurance, but the cheaper the offerings seemingly are. This is only because the cost is hidden in a tax subsidized employer offered benefit called “health insurance.” If insurers offered less, and we formerly had to pay full price for Allegra then the OTC designation would be a welcome change. And we would feel like we were paying less. Instead we feel cheated. The paradox of “insurance.”
2) the patent system allegedly supports the risk that pharmaceutical companies take by giving a company some exclusivity and hence allow them to recoup tremendous investment costs. But what about the consumer? If the ultimate goal of an economy (the division of labor) is to produce goods and services for consumers at the best prices, it seems to me that patents fail to serve the customer. Think of it this way, Company X has perfected a method for pumping out slightly modified versions of drugs that accomplish the same goal: allergy symptom relief. Each drug gets its own patent and a lengthy period of state sanctioned exclusivity protection. During that time period, each drug is designated a “prescription” drug. It then gets “covered” by an insurance company and offered on the cheap through a tax subsidized health insurance. Because the cost is hidden and patients do not incur the actual cost, they are less discriminant and demand the new medication. All the while the company makes a nice profit which it then pours into its new pharmacological offering. The drug comes off patent, goes OTC, and the pharm company has long since moved on to its next drug target.
Implications:
- the prescription designation seems largely artificial. I realize I am glossing over safety testing etc, but the drug one day required MD permission and the next became “safe.”
- when we buy drugs through insurance companies we paradoxically feel like we are getting a good deal. We’re probably not. Pharm companies focus their efforts where they can make a profit. But when the customer is removed as a referee in the profit loss game, his needs become secondary. Put another way, the customer was never able to discriminate between equivalent offerings and thus never able to signal back to the pharmaceutical company whether his hierarchy of needs was being met. The loss is all of the undiscovered drugs that have never been produced simply because pharmaceutical companies didn’t have to. In a less patent laden world, companies would focus less on obtaining patents for equivalent offerings (Claritin vs Allgra for example) and more on moving on to addressing a new set of consumer needs.
